After years of careful planning, you and a friend decide to start a business. You dream of success, but you're also aware of the realities involved in such a venture. Most new businesses go broke and many partnerships turn sour.
If your venture is to prove the exception to the rule, you and your partner will need not just the requisite skills, compatibility, honesty, and a shared vision, but also a strong business foundation.
If you keep in mind the following building blocks, your new business stands a good chance of being on solid ground.
1. Structure
Your business could be set up as a corporation (in which you are technically shareholders) or as a legal partnership. There are advantages and disadvantages to each. Give careful consideration to which type best meets your needs.
Corporations sometimes provide limited creditor protection and certain tax advantages, but expect higher costs for bookkeeping and paperwork.
A partnership costs less to set up and administer, and could offer tax advantages, especially if you expect the business to operate at a loss for the first year or two.
2. Business plan
A well-designed business plan is essential. It keeps you and your partner focused and provides a good way to measure the success of your business.
It's also a necessity if you require financing from outside sources. A sound business plan will help convince a financial institution that you are a worthwhile risk.
3. Financing
How will you fund your startup costs and operating expenses for the first year? Many businesses fail because their owners didn't have enough money to see them through the initial lean years.
Will you and your partner back the business, or will you approach relatives and friends? Will you seek funding from a financial institution? If so, will it be in the form of a loan or a line of credit? Get professional advice to find out what is appropriate for you.
4. Contingency plan
Expect the unexpected—this is where life insurance* can make all the difference.
Consider these scenarios: What if your business partner dies prematurely? Who would inherit their share? Would you want the surviving spouse to become your new partner? What if there isn't a surviving spouse? And if you prefer to own the entire business, will you have the funds to buy out your partner's share?
Another crucial consideration is long-term disability, which is more likely to occur than premature death. Disability insurance and life insurance policies for each partner can safeguard your business in the event of such tragedies.
An additional type of insurance* to consider is key person insurance, which helps your business stay afloat if a key member is unable to work due to illness, disability, or death.
Seeking professional advice is a smart way to ensure your business is prepared for these contingencies and set up for success. Our representatives at Aviso Insurance Inc. are here to guide you through the best options for your business.
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